The troubling parallels between supply chains and securitisation: T“he 2008 US housing crisis revealed the shortcomings of securitisation. The opaque, highly complex, interdependent process that moved slices of Kentucky home loans to buyers such as municipalities in Norway was inherently fragile.
“The extreme confidence that enabled it to exist in the first place inherently set it up for failure. When one conveyor belt in the system failed, the entire chain collapsed.
“The pandemic era is now raising similar concerns about the just-in-time supply chain model… Much like we saw in the securitisation-driven mortgage market in 2008, what was once a world of overabundance could quickly turn to one of intense scarcity.”
Millions of Americans will lose unemployment benefits this weekend…
“Absent of congressional action, that aid will lapse after Saturday or Sunday, depending on state administrative rules. Lawmakers seem unlikely to extend the policies for a third time given improvements in the economy and labor market in recent months.”
Nearly 1 Million U.S. Households Could Be Evicted This Year After Federal Moratorium Expires, Goldman Sachs Estimates.
“…economists at Goldman Sachs estimate about 750,000 American households will ultimately be evicted later this year as a result of the policy change, with as many as 2 million Americans facing eviction risk—a staggering number despite the federal government’s authorization of nearly $50 billion for rental relief.”
Canada suffers shock economic contraction, casting shadow over recovery.
“Canada’s Conservatives hammered Liberal Prime Minister Justin Trudeau on Tuesday after data showed that the country’s economy unexpectedly shrank in the second quarter and again in July, putting the economy at the center of debate three weeks ahead of a national election.”
Soaring inflation to add £12bn to Rishi Sunak’s debt burden.
“Higher-than-expected RPI inflation is set to push UK debt interest payments above official forecasts produced by the government’s spending watchdog… About a quarter of the government’s stock of debt is linked to RPI inflation, meaning interest payments rise in line with the rate of price growth.”
Euro zone inflation surges to 10-year high.
“Shoppers in the euro zone face a surge in prices. Inflation in the region hit a ten-year high in August. Price rises jumped to 3% this month, well above analyst forecasts and way clear of the European Central Bank’s 2% target.”
The Chinese economy is continuing to contract according to data published today by the National Bureau of Statistics.
“The combined index of manufacturing and services industries fell from 52.4 points in July to 48.9 in August. Excluding the early months of the pandemic last year, this is the worst data since the 2008 financial crisis.”
China Evergrande Says Construction of Some Projects Has Stalled, Warns of Possible Default.
“Cash-strapped China Evergrande Group said work has been suspended on some of its real-estate projects after it delayed payments to its suppliers and contractors, showing how the developer’s financial troubles have spilled over into its business operations.”
Asia’s factories hit by pandemic-related supply disruptions.
“Asia’s factory activity lost momentum in August as a resurgence in coronavirus cases disrupted supply chains across the region, raising concerns faltering manufacturing will add to economic woes caused by slumping consumption.”
Brazil’s post-pandemic recovery threatened by inflation and rising rates.
“Brazil’s post-pandemic economic recovery threatens to slow sharply next year as economists sound the alarm over surging inflation and interest rates as well as the effect of an unprecedented drought.”
Education crisis looms in Latin America in wake of Covid.
“Schools across Latin America have remained closed for much of the pandemic, forcing students to distance learn — often over spotty mobile and internet connections. The closures have lasted longer than any other region of the world…”
Haiti’s hunger crisis bites deeper after devastating quake…
“This month’s earthquake has exacerbated the crisis: destroying crops and livestock, leveling markets, contaminating waterways used as sources of drinking water, and damaging bridges and roads crucial to reaching villages…”
South Africa’s Eskom Has Fourth Straight Loss as Debt Eases.
“South Africa’s state-owned power utility posted a fourth consecutive annual loss as it continued to service a mountain of debt, repaired aging plants and lost electricity revenue because of a drop in demand caused by the coronavirus pandemic.”
Internet disrupted, streets quiet in South Sudan after call for protests.
“Internet services in South Sudan were disrupted on Monday and security forces patrolled the streets after activists called for protests against President Salva Kiir’s government.”
Lebanese millers warn of production halt due to fuel shortages.
“The Lebanese flour millers’ association said on Tuesday fuel shortages were threatening bread production and mills would gradually stop working after supplies ran out… fuel shortages …have paralysed many aspects of daily life.”
The economic crisis deepens in Armenia.
“… we can see that prices of almost all daily consumer goods have risen. The price of rice has increased by about 13.4%, the price of bread by about 8.6%, the price of pork by about 32.2% and poultry by about 24.3%. The highest increase was observed in the price of eggs which was more than 51%.”
Sri Lanka declares food emergency as forex crisis worsens.
“Sri Lanka has declared a state of emergency over food shortages as private banks run out of foreign exchange to finance imports. With the country suffering a hard-hitting economic crisis, President Gotabaya Rajapaksa on Tuesday said he has ordered emergency regulations to counter the hoarding of sugar, rice and other essential foods.”
Is the Fed Ever Going to Taper? Can They?
“…The problem is that the Fed has made this liquidity bubble so big now post the Global Financial Crisis, that it has become too big to fail. Given the amount of global dollar denominated debt, they cannot let rates rise too much lest they and other governments default on their loans… rates are now close to 0 and even negative, and they have no room to cut if something were to go wrong now.”
Even The Fed Thinks Current Debt Levels Are Unsustainable.
“The United States is one of the few countries whose treasury, in an act of transparency and with rigorous analysis, has warned its government of the unsustainability of the country’s public finances… Government reports on macroeconomic matters tend to be ambivalent. Nevertheless, this one’s conclusion is decisive: the US government’s fiscal policy is unsustainable.”
Record demand for the Federal Reserve’s overnight reverse repo program could touch a new milestone of $1.4 trillion by year’s end, says Barclays rates strategist Joseph Abate.
“That’s mainly because he sees demand for the facility climbing if debt-ceiling negotiations in Washington drag out through the fall, which could cause the already dwindling supply of Treasury bills to shrink even further.”
Former Fed official warns of ‘urgent’ threat of another financial crisis…
““Dealing with risks to the financial stability is urgent,” Don Kohn, the Fed’s former vice chair for financial supervision said during a speech to the Federal Reserve Bank of Kansas City’s annual Jackson Hole Economic Policy Symposium. “The current situation is replete with…unusually large risks of the unexpected, which, if they come to pass, could result in the financial system amplifying shocks, putting the economy at risk.””
Don’t discount a stock market crash.
“Inflation is the major threat – and if central banks start printing less money in response then markets are in for a painful correction… [also] Thanks to the distortions of passive, indexed investing, rapid Chinese growth has left many Western investors far more exposed to China than they used to be. If China crashed, they would suffer serious losses.”
Covid could still make a mockery of the best-laid economic plans…
“Shutdowns of the economy last year mean stocks are running low, most famously of semiconductors. Being part of a global economy normally reduces supply risks, but when so many countries are experiencing the same shock the opposite is true.”
You can read the previous ‘Economic’ thread here. I’ll be back tomorrow with a ‘Climate’ thread.
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